The Business Benefits of

Industrial/Organizational Psychology

at ACME Aluminum

Trial Case Study: The Skeptical CEO

Behavioral Factors APPL641.185

Dr. Tom Mitchell

Cathy L. Harville

September 20, 1999

The Business Benefits of

Industrial/Organizational Psychology at ACME Aluminum

Dramatic increases in technology and consumer demands are changing the methods many organizations use to remain competitive and to meet economic goals. From its roots in the early 20th century, Industrial/Organizational (I/O) psychology has helped numerous organizations experience economic growth and remain competitive in a demanding marketplace.

This paper will describe the basis and origins of I/O psychology as well as general applications that benefit businesses today. The final section of the discussion will focus on the application of I/O psychology in order to create solutions for current business issues at Acme Aluminum.

Description of I/O psychology

I/O psychology is a science where the topic of study is human behavior and how this behavior may affect employee performance and the realization of organizational goals. The approaches used in I/O psychology are the result of rigorous scientific testing under the scrutiny of peer review. In addition, the field of I/O psychology is interdisciplinary. Scientists from other fields, such as industrial engineering, management science, business computing and ergonomics, participate in research and business applications (Beehr, 1996; Scherer, 1998).

I/O psychology is easily explained by considering the three levels it encompasses: individual, group, and organizational (Beehr, 1996). At the individual level, the interaction of employees with their jobs and environments are examined. Studies at this level may prove helpful in addressing morale issues. At the group level, the focus is on interpersonal interactions of group members and their effect on work. The dynamics of unions are a good example of group behavior. Finally, the organizational level emphasizes the impact that organizational issues have on employees in the organization, and how groups in the organization may interact with each other. An example of a topic for organizational study is the interaction of unions with management.

It is easy to see that I/O psychology encompasses issues at all levels in the organization, making this scientific discipline a comprehensive approach to problem solving and growth.

History of I/O psychology

Even before WWI, psychologists were interested in employee behavior in the workplace and how productivity may be optimized. In 1911, Frederick Taylor, a prominent industrial engineer of the day, studied how manual laborers’ productivity could be increased and optimized (Schultz & Schultz, 1996). As the industrial revolution gained momentum, businesses were challenged with increasing production for a hungry economy, while still maintaining a healthy environment for employees. Since increasing production (which requires more efficient production and/or additional capital) and maintaining a healthy work environment (which implies higher costs for production) are often diametrical, business dilemmas developed that required immediate attention from scientists. For example, in the 1920’s and 1930’s, a series of studies now referred to as “The Hawthorne Studies” investigated the workplace to determine which conditions affected worker productivity (Schultz & Schultz, 1996). An industrial engineering approach was used in all of the studies performed by the Massachusetts Institute of Technology (Beehr, 1996). It was found that job satisfaction, social conditions and the resulting morale that the employees experienced were more important factors in the efficiency of production than the physical conditions of the workplace (Schultz & Schultz, 1996). This finding demonstrated that interpersonal activities are important in the workplace, and are critical to the success of organizations (Beehr, 1996).

Today, many types of I/O psychology exist that focus on specific areas, including organizational psychology, organization development, personnel psychology and organization behavior management (Beehr, 1996). All of these disciplines draw information from each other to advance the understanding of human behavior and improve the functioning of organizations (Beehr, 1996; Scherer, 1998). I will now focus on how I/O psychology can benefit Acme Aluminum.

Application of I/O Psychology to Acme Aluminum

Employees of Acme Aluminum recognize the rapid growth the company has experienced in the past five years. With 50% additional employees and two additional manufacturing sites, it is obvious that the leadership of Acme is investing heavily in the future of the company. However, there are issues present at Acme that are common to many growing organizations today. For example, it is well known that morale is low and there are problems with the unions in two of the Northeast sites. I/O psychology strategies are available to address morale as well as labor issues.

Morale problems may stem from a number of reasons. A survey of employees specifically developed to assess job satisfaction will most likely reveal whether the causes are pay inequity, social characteristics, or possibly benefits among others (Berkowitz, Fraser, Treasure & Cochran, 1987). Since rapid growth has occurred at Acme, the motivators for employees may be different than in the past, and different considerations may need to be explored (Rousseau, 1997). In my internship at ABComputing, Inc., I developed a morale survey to ascertain the reasons for high turnover at the company. We discovered that in five short years, the criteria for job satisfaction among employees had completely changed. Now ABComputing has the opportunity to implement plans to rebuild morale and lessen turnover.

The rapid growth at Acme also provides a timely opportunity to fire up the frontline and develop an organizational pride in union as well as in non-union employees. Employees can be encouraged to maintain pace with changes by a “top down” approach to training and communication. By inculcating core values of the organization, loyalty and a sense of importance are fostered in the minds of the employees. The U. S. Marine Corps use those tactics to produce highly disciplined and top performing troops (Santamaria, 1999).

The cost of engaging the bottom half of the organization is low compared to the cost of retraining and poor productivity (Santamaria, 1999). Employee participation in goal setting and performance feedback have also been shown to increase worker productivity (Shidar & Das, 1995). Much evidence exists that properly executed personnel strategies will be economically favorable in the long term. Studies of the implementation of well-researched recruiting, training, performance appraisal and compensation systems at major corporations confirm the many economic benefits of personnel psychology (Johns, 1993).

In considering groups in organizations, unions have endured many decades of change in American business. It follows that the methods used to engage union members may also need to change. Older union members may have different goals than younger union members, and conflict may arise. I/O psychologists have found that by emphasizing the organizational interests and goals, within group conflict may be decreased and productivity increased (Chatman, Polzer, Barsade & Neale, 1991). The U.S. Marine Corps stress common goals and values, the importance of each individual, and the importance of leadership to promote group cohesion (Santamaria, 1999).

The functioning of an organization is primarily affected by its members, since the people are as important as the organization (Beehr, 1996). Although the individual, group, and organization cannot be completely separated, approaches are needed that address organizational issues. Recent research points out that the changes within the organization often direct the course of research and the resultant strategies used by the organization (Rousseau, 1997). Therefore, it is important to assess the organizational changes occurring within Acme, and develop appropriate systems to address the outcomes of the changes.

A technical analogy may be made to manufacturing equipment. Technology is used to assess what type of equipment is necessary to manufacture products. As time goes on, the equipment is monitored for changes, problems, and how it may be updated to continue to meet economic needs.

Similarly, in organizational development, research results are used to determine what employees need today and how their needs may differ when changes occur in the organization. By using organizational psychology, the potential of employees may be fully realized with needs analysis, proper training and flexible career development. Involving employees in organizational communication and inclusion in decision-making processes also fosters dedication to company goals.

In summary, several opportunities exist for Acme Aluminum to increase productivity, address labor issues and improve employee morale. Acme is already using parts of I/O psychology in many ways. By employing an I/O psychologist with practical experience, Acme can realize improved and timely returns on its investment of human resources with systematic business approaches.

References

Beehr, T. A. (1996). Basic organizational psychology. Boston: Allyn & Bacon.

Berkowitz, L., Fraser, C., Treasure, P. & Cochran, S. (1987). Pay, equity, job gratification, and comparisons to pay satisfaction. Journal of Applied Psychology, 72, 4, 544-51.

Chatman, J. A., Polzer, J. T., Barsade, S. G., Neale, M. A. (1998). Being different yet feeling similar: The influence of demographic composition and organizational culture on work processes and outcomes. Administrative Science Quarterly, 43, 4, 749-781.

Johns, G. (1993). Constraints on the adoption of psychology-based personnel practices: Lessons from organizational innovation. Personnel Psychology, 46 (3), 549-593.

Rousseau, D. M. (1997). Organizational behavior in the new organizational era. Annual Reviews of Psychology, 48, 515-46.

Santamaria, J. A. (1999). Firing up the front line. Harvard Business Review, 77 (3), 107-118.

Scherer, E. (Ed.). Shop floor control - A systems perspective: From deterministic models towards agile operations management. Heidelberg & New York: Springer.

Schultz, D. P. & Schultz, S. E. (1996). A history of modern psychology. Fort Worth: Harcourt Brace.

Shidar, A. A. & Das, B. (1995). A field study of worker productivity improvements. Applied Ergonomics, 26, 1, 21-27.

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